Two men who sold fake gas drilling rights sentenced to federal prison

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The plan was ingenious: Find forgotten properties with absent owners who probably hadn't even thought about the gas trapped deep in the shale below. Forge deeds transferring the gas rights to official-sounding companies, then sell them to drilling firms.

Derek A. Candelore, 34, of Jeannette and William J. Ray, 30, of Monroeville got the idea while working as "land men," securing legitimate rights to Washington County gas for a real company. Fake rights proved more lucrative, bringing them $2.4 million over a year and a half, and maybe they convinced themselves they were doing no harm.

"It was finding rights to gas that people didn't know they had," said Robert Stewart, the defense attorney for Ray. "So you lie to yourself: Well, they didn't know they had it, so they'd never know they lost it."

U.S. District Judge Arthur J. Schwab on Friday sentenced Candelore to three years and four months in prison, and Ray to one year and eight months. Both have to repay their victims and face federal probation after release.

Candelore "caused great harm to innocent people for substantial money over a significant period of time," said Judge Schwab, hours before making a similar statement to Ray.

Both men pleaded guilty to mail fraud last year. Assistant U.S. attorney Nelson Cohen told Judge Schwab that Ray helped investigators to nail down evidence against Candelore, and that the latter was involved in more fraud for more money.

The two began creating and filing fake mineral rights documents in early 2011, deeding gas and oil rights to fictitious companies they created with names including Clark Lumber Co., McComb Hines & Beggs Trust, Davis Minerals, Marcellus Land Services, Stallion Oil and Gas, and Blue Bell Minerals.

Candelore was involved in 42 such transfers, and Ray in 31. They sold gas rights to Range Resources of Fort Worth, Texas, and Tennessee-based Buffalo Royalties LLC.

Mr. Cohen said the scheme was discovered when an elderly couple, seeking to prepare their estate, had an attorney research the mineral rights to their property, only to find they had recently been fraudulently sold. Meanwhile, Range Resources discovered that different employees were negotiating with different people for rights to drill on the same property.

"You're not going to find a more ashamed person, defendant, come before you than me today," Candelore told Judge Schwab, while weeping. He apologized to landowners and companies he had deceived.

His defense attorney, Stephen Stallings, told the judge that Candelore spent much of the money on a home for his then-pregnant wife, paying taxes on the proceeds, and giving to his church and to random strangers. More than 50 people wrote to Judge Schwab in support of Candelore.

Mr. Stallings noted that when a U.S. Postal Inspection Service investigator approached him, he promptly turned over $679,263 in proceeds from the scheme.

Mr. Cohen said that was only part of the story. "He not only brought the money in, but he made up a story that he was the victim," Mr. Cohen said.

Investigators got Ray to make a call to Candelore, which they recorded. In that call, Candelore blamed people whose names he pulled off the online site LinkedIn, and people he apparently invented, Mr. Cohen said.

"I do believe that Derek Candelore feels terrible about getting caught," the prosecutor said, turning to the defendant's supporters. "But true remorse, in my opinion, isn't going to all of your friends, your neighbors, your family members and mischaracterizing what you did" to get them to write to the judge.

Judge Schwab agreed that Candelore was "not the misled and naive person that he sometimes has conveyed himself to be."

Judge Schwab gave both men until late March to report to prison, adding that they might have to be kept apart.

Rich Lord: rlord@post-gazette.com, 412-263-1542 or on Twitter @richelord. First Published January 31, 2014 11:53 AM

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